There always seems to be a lot of confusion around what dollar cost averaging (DCA) and lump sum actually mean. We will briefly define them here in terms of Bitcoin buying strategies.
Lump Sum
Lump sum is simply having an amount of money for which you want to purchase Bitcoin and making the buy all at once. Let’s say you have $1000 and want to buy Bitcoin. A lump sum purchase is taking the entire $1000 and buying Bitcoin.
Dollar Cost Averaging
Let’s say you have $1000 and want to buy Bitcoin, but instead of buying it all at once, you break it down into smaller purchases at regular intervals. For example, you make $100 buys over a period of 10 weeks. Or you make $2 buys over a period of 500 days. DCA is a strategy of delayed buying.
Confusion
For some reason, people tend to think that a “lump sum” must mean a large amount. There is no quantity criteria for lump sum versus DCA.
People also confuse DCA and regular lump sum purchases. If you get paid weekly and allocate $200 of that weekly pay to Bitcoin, and you make the purchase all at once each week, then you are making lump sum purchases. DCA in this situation would be spreading that $200 out over some interval of time.
In summary, if you have some amount of money and want to spread out the purchases over some period of time, you are dollar cost averaging. If you buy it all at once, you are making a lump sum purchase.